In a well-received set of quarterly results, Orexo continued to execute on Zubsolv in the US, which, for the second quarter running, continued to be the only branded product in the category that increased its market share in the face of multiple generics. Zubsolv US revenues of SEK158.4m grew by 27.6% y-o-y, driving total revenues to SEK200m. EBITDA of SEK50.6m, cash flow from operations of SEK39m and a gross cash balance of SEK494.8m made Q218 one of Orexo’s best ever quarters.
Written by
Orexo |
One of the best ever quarters |
Q218 results |
Pharma & biotech |
13 July 2018 |
Share price performance
Business description
Next events
Analysts
Orexo is a research client of Edison Investment Research Limited |
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In a well-received set of quarterly results, Orexo continued to execute on Zubsolv in the US, which, for the second quarter running, continued to be the only branded product in the category that increased its market share in the face of multiple generics. Zubsolv US revenues of SEK158.4m grew by 27.6% y-o-y, driving total revenues to SEK200m. EBITDA of SEK50.6m, cash flow from operations of SEK39m and a gross cash balance of SEK494.8m made Q218 one of Orexo’s best ever quarters.
Year end |
Revenue (SEKm) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/16 |
705.9 |
35.6 |
0.8 |
0.0 |
47.2 |
N/A |
12/17 |
643.7 |
29.7 |
0.7 |
0.0 |
53.9 |
N/A |
12/18e |
800.5 |
109.9 |
2.9 |
0.0 |
13.0 |
N/A |
12/19e |
918.1 |
160.8 |
4.5 |
0.0 |
8.4 |
N/A |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Zubsolv keeps on gaining market share
As Orexo’s biggest product, Zubsolv’s US sales largely dictate Orexo’s quarterly performance and Q218 was a knock-out quarter for Zubsolv. Total net revenues were SEK199.7m up 25.5% y-o-y and driven by Zubsolv US revenues of SEK158.4m (up 27.6% y-o-y in SEK terms, or 29.8% in local currencies) including a $1.4m prior period revenue adjustment. We had already included the €3m milestone from Mundipharma for the EU launch of Zubsolv (royalties have not yet been recorded for the last quarter) in our model, but this, in addition to a further quarter of cash generation, resulted in a gross cash balance of SEK494.8m (SEK294.3m at end H117). Orexo’s minor product royalty streams did not materially affect its profitability, although the SEK11.9m from Abstral was nearly double our quarterly estimate of SEK6.1m.
Operational efficiencies already benefiting
One of the biggest variances in our model was the effect of Orexo’s operating efficiency programme. CoGS for Q218 were SEK37.6m against our estimate of SEK43.0m, and SEK35.8m in Q217 on much lower Zubsolv volumes a year ago. This is important as the more expensively produced batches, which were expected to dilute margins for the rest of the year, have already been sold H118. Further margin improvement is expected to come from higher volumes being produced at a new contract manufacturer. The margin improvements were largely absorbed in Q2 by higher legal expenses on patent litigation, R&D spend on OX124 and the appreciation of the US dollar, since most sales and marketing costs are in dollars.
Valuation: Updated for cash generation
We have updated our model for net cash including operating cash flow, milestones and exchange rates. Our valuation has increased to SEK2.52bn or SEK72.0 per share from SEK2.37bn or SEK67.8 per share previously. With no decision in the Actavis patent appeal, even our worst-case scenario is softened by the multi-year contracts with managed care organisations, which have led to Zubsolv’s recent volume growth.
Exhibit 1: Financial summary
|
|
|
SEKm |
2014 |
2015 |
2016 |
2017 |
2018e |
2019e |
Year end 31 December |
|
|
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
|
INCOME STATEMENT |
|
|
|
|
|
|
|
|
|
Revenue |
|
|
|
570.3 |
643.3 |
705.9 |
643.7 |
800.5 |
918.1 |
Cost of Sales |
|
|
|
(107.4) |
(136.1) |
(149.6) |
(164.4) |
(176.6) |
(179.7) |
Gross Profit |
|
|
|
462.9 |
507.3 |
556.3 |
479.3 |
623.9 |
738.5 |
Reported operating profit |
|
|
(25.0) |
(169.0) |
51.7 |
57.4 |
116.7 |
201.4 |
|
Net Interest |
|
|
|
(27.6) |
(22.1) |
(16.1) |
(27.7) |
(6.8) |
(40.6) |
Profit before tax (reported) |
|
|
(52.6) |
(191.1) |
35.6 |
29.7 |
109.9 |
160.8 |
|
Reported tax |
|
|
|
(4.0) |
(6.9) |
(6.5) |
(6.5) |
(3.8) |
(4.8) |
Profit after tax (reported) |
|
|
(56.6) |
(198.0) |
29.0 |
23.2 |
106.1 |
156.0 |
|
Minority interests |
|
|
0.0 |
0.0 |
0.0 |
0.0 |
5.3 |
0.0 |
|
Net income (reported) |
|
|
(56.6) |
(198.0) |
29.0 |
23.2 |
100.8 |
156.0 |
|
|
|
|
|
|
|
|
|
|
|
Basic average number of shares outstanding |
|
33.0 |
34.0 |
35.0 |
35.0 |
34.6 |
34.6 |
||
EPS - basic reported (SEK) |
|
|
(1.73) |
(5.74) |
0.84 |
0.67 |
2.91 |
4.51 |
|
EPS - normalised fully diluted (SEK) |
|
(1.73) |
(5.74) |
0.84 |
0.67 |
2.91 |
4.50 |
||
|
|
|
|
|
|
|
|
|
|
Revenue growth (%) |
|
|
32.8 |
12.8 |
9.7 |
(8.8) |
24.4 |
14.7 |
|
Gross margin (%) |
|
|
81.2 |
78.8 |
78.8 |
74.5 |
77.9 |
80.4 |
|
|
|
|
|
|
|
|
|
|
|
BALANCE SHEET |
|
|
|
|
|
|
|
|
|
Fixed assets |
|
|
|
289.5 |
185.9 |
185.1 |
176.5 |
171.4 |
164.3 |
Intangible assets |
|
|
197.0 |
159.1 |
138.2 |
121.0 |
106.6 |
96.3 |
|
Tangible assets |
|
|
29.1 |
24.7 |
22.1 |
20.1 |
21.6 |
24.7 |
|
Investments & other |
|
|
63.4 |
2.1 |
24.8 |
35.4 |
43.3 |
43.3 |
|
Current assets |
|
|
936.4 |
830.4 |
833.7 |
827.4 |
1,084.0 |
1,247.1 |
|
Stocks |
|
|
|
478.1 |
398.9 |
344.2 |
250.2 |
150.0 |
150.0 |
Debtors |
|
|
|
173.8 |
233.4 |
178.5 |
249.3 |
381.7 |
400.7 |
Cash & cash equivalents |
|
|
284.5 |
198.1 |
282.4 |
327.9 |
552.3 |
696.4 |
|
Other |
|
|
|
0.0 |
0.0 |
28.6 |
0.0 |
0.0 |
0.0 |
Current liabilities |
|
|
(268.1) |
(251.6) |
(309.5) |
(349.9) |
(488.5) |
(488.5) |
|
Creditors |
|
|
|
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
Short-term borrowings |
|
|
(1.9) |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
|
Other |
|
|
|
(266.2) |
(251.6) |
(309.5) |
(349.9) |
(488.5) |
(488.5) |
Long-term liabilities |
|
|
(502.8) |
(498.3) |
(399.0) |
(324.9) |
(323.7) |
(323.7) |
|
Long-term borrowings |
|
|
(493.8) |
(494.4) |
(397.8) |
(319.1) |
(319.8) |
(319.8) |
|
Other long-term liabilities |
|
|
(9.0) |
(3.9) |
(1.3) |
(5.8) |
(3.9) |
(3.9) |
|
Net assets |
|
|
|
455.0 |
266.5 |
310.3 |
329.1 |
443.2 |
599.2 |
Shareholders' equity |
|
|
455.0 |
266.5 |
310.3 |
329.1 |
443.2 |
599.2 |
|
|
|
|
|
|
|
|
|
|
|
CASH FLOW |
|
|
|
|
|
|
|
|
|
Operating cash flow before WC and Tax |
|
(35.5) |
(119.4) |
67.5 |
108.1 |
135.5 |
168.5 |
||
Working capital |
|
|
(451.8) |
17.2 |
88.7 |
0.0 |
69.2 |
(19.1) |
|
Exceptional & other |
|
|
(19.0) |
(20.6) |
(20.8) |
(37.2) |
(16.8) |
(40.6) |
|
Tax |
|
|
|
(4.0) |
(6.9) |
(7.5) |
0.0 |
(4.5) |
(4.8) |
Net operating cash flow |
|
|
(487.3) |
(102.2) |
156.2 |
146.6 |
204.7 |
149.5 |
|
Capex |
|
|
|
(71.7) |
(4.1) |
0.5 |
(1.6) |
(4.7) |
(5.4) |
Acquisitions/disposals |
|
|
0.0 |
21.8 |
5.0 |
0.0 |
0.0 |
0.0 |
|
Equity financing |
|
|
349.3 |
3.8 |
2.2 |
0.1 |
0.1 |
0.0 |
|
Other |
|
|
|
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
Net cash flow |
|
|
|
209.7 |
(80.7) |
163.9 |
145.1 |
204.8 |
144.1 |
Opening Net debt (cash) |
|
|
(1.5) |
209.3 |
296.3 |
115.4 |
(8.8) |
(232.5) |
|
FX |
|
|
|
(1.5) |
(6.3) |
17 |
(20.9) |
18.9 |
0.0 |
Closing Net debt (cash) |
|
|
209.3 |
296.3 |
115.4 |
(8.8) |
(232.5) |
(376.6) |
|
Source: Orexo, Edison Investment Research
|
|
Telford Homes’ latest update is consistent with management comments accompanying FY18 results and the company is on track to deliver further progress in FY19. The share price has not kept step with business performance, perhaps influenced by wider cyclical sentiment. Project portfolio newsflow is likely to remain positive, and this should serve to re-connect internal progress and investor returns in our view.